Lawful Return of Part of the Fund Surplus

A case in the NSW Supreme Court examined the matter of an Employer-Sponsor of a superannuation fund seeking a return part of the Fund Surplus in Lock v Westpac Banking Corp 25 NSWLR 593 {26 August 1991}.

The Trustee amended the Rules of the Fund to allow $300 million of surplus assets to be returned to the bank while $300 million worth of amendments to the scheme be made for the benefit of the Members.

This would appear to be a fair arrangement since in superannuation funds there are two “Settlors” – the Employer-Sponsor and the Members. A 50:50 split of the surplus would appear to be a fair approach to sharing the surplus.

Held: In considering a Trust Deed governing a superannuation fund to determine the nature and scope of the power authorising amending the deed:

(a) the deed must be construed as a whole, with close regard to the terms of the amendment under consideration, to ascertain whether the amendment is within the amending power.

(b) if(as a matter of construction) the amendment is within power, it cannot be an infringement of the sub-stratum of the trust, bearing in mind that identification of the sub-stratum must itself be determined as a matter of construction of the deed, having regard to the surrounding circumstances.

(c) a party exercising the power of amendment may be under an implied obligation to act in good faith {Imperial Group Pensions Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589; [1991] 2 All ER 597 followed}.

Held: An Employer exercising a power to amendment in a trust deed governing a superannuation fund may not be under a fiduciary duty not to act in its own self interest if (as a matter of construction) the deed permits it to do so and the it complies with the deed.{Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 applied}

Held: In exercising their power to consent to the amendment of a trust deed governing a superannuation fund, the Trustees:

(a) are obliged, as fiduciaries, to act honestly and in good faith, in what they consider to be in the interests of the members of the scheme, and for proper purposes and upon relevant considerations {Metropolitan Gas Co v Federal Commissioner of Taxation (1932) 47 CLR 621, applied Cowan v Scargill [1985] Ch 270 followed}.

(b) may take into account interests of the Employer if (as a matter of construction) the trust deed so permits and the trustees, acting in accordance with their obligations as fiduciaries are satisfied on reasonable grounds that the amendment is fair.

In a number of cases a purported amendment was held not to be authorised by a provision providing for amendment. In Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 730, a decision of Kearney J, amendment was authorised “in any respect which would in the opinion of the Company not prejudice any benefit secured by contributions made on behalf of any member prior to the date of any such alteration or amendment“. The company intended to give notice of its intention to discontinue the Fund which would have resulted in the fund being wound up. One of the provisions of the Deed provided that any money in the hand of the trustees which was surplus to the benefits payable to members be applies “for the provision of such (further) benefits to such members as the Company may direct“. Therefore it was held that the amendment the company proposed to make before the fund was discontinued, that any monies in excess of the benefits payable to members should be paid to the company was in breach of the amendment provision.